Reflections on Economics, Society, Philosophy, and Whatever Else I Feel Like Discussing

Monday, 19 January 2015

Put Yourself in Someone Else's Shoes

I have always suspected Oxfam of being more than just a little bit out of it and today's news story from the BBC offers a case in point. Here's the abstract from the so-called "anti-poverty" organization's report:

"Global wealth is increasingly concentrated in the hands of a small wealthy elite. These wealthy individuals have generated and sustained their vast riches through their interests and activities in a few important economic sectors, including finance and insurance, and pharmaceuticals and healthcare. Companies from these sectors spend millions of dollars every year on lobbying to create a policy environment that protects and enhances their interests further. The most prolific lobbying activities in the US are on budget and tax issues; public resources that should be directed to benefit the whole population, rather than reflect the interests of powerful lobbyists."

The BBC article notes certain flaws in the report, but there is a lot more to be said about it than that. According to the Oxfam study, the eighty richest people in the world have as much wealth as do the least wealthy half of the world's population (p. 3). The abstract claims that they get to this point by lobbying, but then that does not explain the trend that they are trying to establish; surely these people were as keen (or un-keen) on lobbying in 2010 as they are today. I could be wrong, but I don't believe Warren Buffett (who sits atop the list) or Carl Icahn (number three) have ever been active campaigners in Washington for the purposes of increasing their own wealth. What I believe Oxfam mean is that many of the wealthy individuals own shares in companies which belong to sectors that lobby a lot. But if you're very wealthy, you're apt to own shares in companies in a vast array of sectors.

I would like for Oxfam to put themselves in the shoes of some of the wealthy people whom they appear to target in this report. If an individual gets rich (through the stock market, industry, or whatever) by means of voluntary trade, all his business interactions are ones of mutual acceptability. Oxfam do a terrible job at explaining what is wrong with an individual amassing $1,000 or $1,000,000 or even $1,000,000,000 in this fashion. If Oxfam put themselves in the shoes of someone wealthy, knowing that the wealth was due to honest trading, I hope they would feel ashamed for singling out eighty individuals and contrasting their success with the misery of thousands of millions. Because it is not the fault of the successful ones that others are poor. If I happen to do things for which others pay well and I save my money, am I to be considered a problem and perhaps even a menace to the common good? It would seem to me that this report makes Oxfam look like an anti-rich organization, rather than an anti-poverty one.

Indeed, Oxfam have it backwards, because the richer a person can get by voluntary transactions, the better it is for humanity. This is true for two reasons: (1) to get rich means to save and to get really rich, all else equal, means to save for a long time, so having a huge pile of money is an indicator that a person can live longer, and if one person can we all can and a long life is better than a short one (Warren Buffet is way past the life expectancy of 100 years ago); (2) to get really rich means that one must have some sort of income and a higher one is better for the purposes of getting rich. To have a high income, one must do stuff that others will pay for, but for others to pay for stuff they need to appreciate it. That someone has made billions and billions must mean, then, that others have benefitted by at least that amount, otherwise they would not have given it away. And that a person can have that good an impact on others really is a triumphant achievement which should be an inspiration to all man kind.

I don't know if it is a trend or not, but I have sensed rather many "anti-rich" feelings around the Inter-Web lately and I don't like it. To the extent that somebody can get extremely wealthy by special favours from the government, that is nothing to applaud, but at least several of the wealthy individuals singled out by Oxfam do not appear to me to be well-known lobbyists. Still, if it were the case that riches are obtained through unsavoury political favours, that would be an argument for a weaker government. Instead, Oxfam appear to want governments to be more powerful. That they do not realize such basic things makes the report a travesty of research and a reason for the involved individuals at Oxfam to feel deep contrition. For shame.

PS. The BBC article mentions some reasons why inequality (i.e. not just poverty) might be a problem. The Beeb's Economics editor Robert Peston notes:

"There are all sorts of reasons why such increases in inequality are
troubling, and not just for those at the bottom of the income and wealth
pyramid.

"One is that aspirational people on lower incomes have massive incentives to
take on too-great debts to support their living standards - which exacerbates
the propensity of the economy to swing from boom to financial-crisis bust.

"Another is that the poor in aggregate spend more than the rich (there are
only so many motor cars and yachts a billionaire can own, so much of the
super-rich's wealth sits idle. as it were), and therefore growth tends to be
faster when income is more evenly distributed."

This is nonsense and Robert Peston should know it. The first reason is pure speculation coupled with the notion that interest rates inherently fail to price risk. Inequality could just as easily spur the less wealthy on work more. I don't see why this incentive is any worse than what Peston suggests. Peston's "mechanism" (if one may call it that) also has the disadvantage of implying that people foolishly take on debt they cannot repay. Not likely.

I don't know of any evidence to support Peston's other assertion either, that wealth inequality makes growth sluggish, though it could be that I am ignorant. It would seem to me that "idle" wealth ought to be invested or lent against interest. Still, even if the assertion is true, it does not speak against income inequality because if everyone got a lot richer, there would still be no point in buying more than X yachts or motor cars. By Peston's logic, inequality of wealth only means that we're approaching a GDP plateau a little less quickly.